Pennsylvania Takes Second Shot at Cutting Property Taxes

Pennsylvania has enacted a law that trims property taxes by imposing new limits on school districts’ budgeting freedom, and shifts more of the burden of education funding from local to state shoulders.

The law, signed by Gov. Edward G. Rendell on June 27, represents the Democratic leader’s second attempt to reduce the property taxes on which schools in the Keystone State depend so heavily. Reducing those local taxes while also reducing the schools’ reliance on them has been a cornerstone of Mr. Rendell’s tenure and figures heavily in his current bid for re-election.

The governor pushed successfully for a 2004 law, Act 72, that allowed districts to use future slot-machine proceeds to reduce property taxes in exchange for limits on how much they could increase their budgets. An increase in the earned-income tax would have replaced the property-tax money.

But that law left it up to the state’s 501 school districts to “opt in” to that calculus, and only 20 percent did so, despite pressure from Gov. Rendell for full participation. Unsatisfied, he called the legislature into a spring special session to design a new law. ("Majority of Pa. Districts Snub Rendell Tax-Relief Plan," June 15, 2005.)

The new law repeals Act 72, but duplicates some of its provisions. School boards must still seek voters’ permission to increase their budgets above an inflation-pegged cap. But some decisions are no longer up to school boards, such as whether gaming proceeds will be used to lower property taxes. Under the law, all residents who sign up for lower bills will benefit.

The question of whether to raise the local earned-income tax in exchange for getting gaming revenues and further lowering property taxes also has been taken from school boards’ hands; they must put that question to voters in a 2007 referendum.

The biggest benefit of the package goes to senior citizens, who stand to pay lower property taxes without being subject to a higher earned-income tax. Low-income seniors also benefit from an addition to the law that expands Pennsylvania’s existing program of property-tax and rent rebates. It borrows $200 million from the state lottery fund to grant the rebates of $250 to $650.

Slot-machine revenue will be used to perpetuate that program once those funds begin appearing, not before late 2007.

Shifting the Burden

Gov. Rendell contends the new law will reduce property taxes by 17 percent, and hails it as the biggest property-tax cut in state history. The issue is guaranteed to stay high on the political radar as the governor campaigns for a second term this fall: His Republican opponent, former Pittsburgh Steelers football star Lynn Swann, argues that the entire property-tax-assessment system must be overhauled.

Education groups and school boards still oppose provisions such as the law’s budget limitations. They say that districts will likely have to cut their budgets to manage rising, mandated costs in areas such as pensions and special education.

“When costs bump up against spending caps, programs will be cut,” said Scott K. Shewell, the spokesman for the Pennsylvania School Boards Association.

Some groups maintain that the law’s budget limitations are meaningless because of a list of exceptions built into the legislation. For instance, school boards don’t have to ask voters’ permission for budget increases driven by construction, debt service, or health-care costs. Mr. Shewell noted that districts must ask the courts or the state department of education for permission to use such exceptions.

According to Gov. Rendell’s office, the new law will raise the state’s share of K-12 education funding from 36 percent to 42 percent. Shifting a greater share of education spending from local to state sources has been a key aim of the governor, who took office in 2003. But some contend he hasn’t done enough yet.

Ronald R. Cowell, a former state lawmaker who is now the president of the Education Policy and Research Center in Harrisburg, said Pennsylvania still must overhaul the way it pays for schools by further reducing education’s dependency on property taxes, pegging education spending to its actual costs, and reducing spending inequities between districts.

PHOTO: Pennsylvania Gov. Edward G. Rendell signs a souvenir copy of a bill for homeowner Johnnie Mae Nixon, left, at her home in Pittsburgh. Mr. Rendell said that Ms. Nixon, a 76-year-old widow, would have her school and property taxes erased by the law, which is expected to provide $1 billion a year in tax cuts statewide.

—Keith Srakocic/AP

Vol. 25, Issue 42, Page 24

Published in Print: July 12, 2006, as Pennsylvania Takes Second Shot at Cutting Property Taxes

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